What Makes People Happy? The Economics of Happiness

Happiness is a tricky thing to measure scientifically, but the data suggests that it might be the most important factor in human life. Researchers have tried to find out what makes people happy and why some of us aren’t quite so satisfied with our lives as others. In this blog, we’ll explore these questions by examining one economic theory: relative income hypothesis.

The “the economics of happiness analysis” is a book that looks at the relationship between economic factors and happiness. The author, Richard Layard, has been researching this topic for over 30 years.

Vintage pasture fence farmland.

Men have an inherent restlessness. We’re constantly on the lookout for new experiences, wanting to feel like we’re making progress in life, and wondering whether the grass is greener someplace else.

When focused towards hobbies that really lead to increased pleasure and contentment, our insatiable tendency may be a positive thing. However, restlessness might lead us astray if we spend our time traveling down paths that are really dead ends.

Our Happiness Collection

Psychologists use the following equation to “compute” happiness:



S stands for set point.

Perhaps half of our pleasure and contentment in life is genetically determined. There’s nothing we can do about some individuals being born innately happier than others. This is our “set point” for happiness. However, it’s more correct to refer to it as a “fixed range.” We may either shift our happiness ticker to the higher or lower range of our happiness potential. What is the source of the ticker’s movement? Continue reading.


Some aspects of ourselves we can’t alter (or can’t change much about): ethnicity, gender, health, beauty, and so on. The adaptability principle, however, means that these circumstances don’t have as big of an impact on your pleasure as you may imagine. Changes in our life affect our thoughts, and these changes cause our happiness ticker to rise or fall. However, we rapidly adapt to the adjustments, and the ticker returns to its typical range. This is why, as incredible as it may seem, both lottery winners and individuals who are paralyzed in an accident return to their pre-windfall/post-tragedy levels of enjoyment in less than a year.

V stands for Voluntary Conditions.

Voluntary circumstances, unlike other types of conditions, are those that you choose—relationships, jobs, interests, location, and so on. Because they are less vulnerable to the adaptability principle, these items may have a bigger influence on your happiness.

The secret to discovering really greener pastures is to focus on pursuing the correct things—things that will actually make you happier—rather than wasting your energy on a happy mirage.

This is where happiness economics comes into play. Numerous research have indicated which aspects of life are linked to higher levels of pleasure. Granted, these factors contribute to happiness, but they do not guarantee happiness. But, as I usually say, it’s worth looking about to see where the cheerful people gather. We examine if the grass is indeed greener in those pastures by highlighting eight aspects of a man’s life that we frequently link with rising or decreasing pleasure.


Vintage man holding wallet with money.

“In many industrialized countries, the amount of income has doubled or tripled in the previous fifty years, yet people’s levels of pleasure and contentment with life have not altered, and sadness has actually grown more widespread.” The Happiness Hypothesis is a theory that claims that if you are happy, you will be

Money and riches have maybe influenced happiness more than any other element, and they have been ingrained in popular culture. Some argue that money does not buy happiness, while others argue that the first group is just not buying at the correct shops.


The question of whether money can purchase happiness is important because it affects many of the choices we make in life. Should we choose a degree that would lead to a more profitable profession or should we follow our passion? Should we accept the promotion that pays more but allows us to spend less time with our family?

Several studies have shown that money can buy happiness…to a degree. Money makes you happy to the degree that it enables you to meet your basic wants plus a little more, but once you reach the middle class, the impact fades. Money “does nothing for pleasure, enjoyment, despair, or tension” after a family income of $75,000, according to a new research published in the Proceedings of the National Academy of Sciences. Although the experience of being content with one’s life as a whole increased with money, day-to-day happiness did not grow beyond the $75k threshold. A worldwide Gallup study showed similar results: money was linked to life satisfaction, but not to the good sensations people had on a daily basis.

The reason that money enhances life satisfaction but not day-to-day pleasure may be attributed to the fact that how much we earn in comparison to other people is more relevant than the absolute quantity of our income. We get pleasure from the sensation of being higher up in society’s hierarchy. People, regardless of their financial level—rich or poor—always believe that increasing their satisfaction by 20% will make them happier. That’s why, despite the fact that people’s living standards have been growing for decades, they aren’t becoming any happier.

So there is some validity to the notion that money can buy happiness. But it’s also true that those who don’t believe this aren’t “shopping” in the correct areas. This leads us to:

Possessions Material

Milkman standing with car and talking to driver illustration.

The quantity of money you earn is just half of the picture; how you spend it is as important.

Because of something known as the “hedonic treadmill,” you rapidly adjust to your new goods and need to acquire more items to experience the high again, conspicuous consumption—buying the larger home, the expensive automobile, and the designer duds—doesn’t correspond with increased pleasure. Every time you drive a new automobile for the first few weeks, it gives you a lift; a year later, it’s just another form of transportation. And your enjoyment with material items is highly dependant on comparing your possessions to others’; you’re overjoyed with your new flat-screen TV until your neighbor shows you his 3-D set-up.

However, persons who engage in greater “prosocial spending,” that is, spending their money on items for others and donating to charity rather than on themselves, report a longer-term improvement in happiness. But our inner caveman rejects this conclusion; humans have a natural desire to flaunt their position in front of other tribe members.


Another approach to gain more enjoyment for your money is to spend it on experiences rather than objects. Spending money on holidays, restaurants, movies, and concerts is more likely to make you happy than spending money on tangible stuff. Our social bonds, which are one of the most important contributors to true pleasure, are strengthened through experiences. Activities allow us to spend time with others, generate shared experiences that we can reflect on later, and provide us with intriguing tales to tell individuals who weren’t there. And experiences are less affected by the hedonic treadmill; in fact, our memories improve with time. We forget about the bad aspects of our vacations and focus on how wonderful they were.


Traffic boners advertisement illustration.

When individuals are asked what activities make them happy, sex is at the top of the list, while commuting is near the bottom. Despite this, many individuals feel that having a cheaper and larger home or a higher-paying job would compensate for a longer commute. They are mistaken. Two Swiss economists who researched the impact of commuting on happiness discovered that such variables were insufficient to compensate for the suffering caused by a lengthy commute.

What is the source of this “commuter’s paradox?” Clearly, commuting is inconvenient; it takes time away from your family, costs money, and worries you out. Not only is it inconvenient for the commuter, but it also affects his partner’s happiness. But, more crucially, whereas many voluntary situations may not impair our pleasure in the long run because we get acclimated to them, individuals never become accustomed to their daily commute since traffic might be bad at times and good at others. “Driving in traffic is a new form of torture every day,” Harvard psychologist Daniel Gilbert put it.

To compensate for a longer commute, a guy would have to earn 40% more money in his employment. Despite this, many individuals will pick the larger home over the smaller one and the ability to walk to work. Why? They commit a “weighting error,” as author Jonah Leher and psychologist Ap Dijksterhuis explain:

“Think about two housing options: a three-bedroom apartment in the heart of a city with a ten-minute commute or a five-bedroom McMansion on the outskirts of town with a 45-minute commute. “This trade-off will occupy people’s minds for a long time,” Dijksterhuis predicts. “And the vast majority of them will finally choose for the larger home.” After all, having a third bathroom or an additional bedroom is essential for when Grandma and Grandpa visit for Christmas, although commuting two hours each day isn’t that hard.” What’s fascinating, according to Dijksterhuis, is that the more time individuals spend debating, the more valuable that additional space becomes. They’ll conjure up all kinds of situations (a huge birthday party, Thanksgiving meal, another kid) that will make the suburban home a must-have. Meanwhile, the discomfort of a long journey will seem little in comparison to the appeal of an additional bathroom. But, as Dijksterhuis points out, that logic is backwards: “For at least 362 or 363 days each year, the second bathroom is a wholly unnecessary benefit, but a lengthy commute does become a hardship after a while.”


On a related point, while picking where to live, remember to account for noise, which is another situation to which we never entirely adapt. You could believe that living in your ideal home would make up for the fact that it’s situated next to a very busy junction, but chances are it won’t.


Vintage boss and secretary taking notes at desk.

Perhaps no other issue contributes to a man’s restlessness more than his employment. A guy who is dissatisfied with his job will spend a lot of time pondering whether he would be happier in a new area of employment. He might be correct, depending on the type of job he fantasizes about.

Happiness does seem to cluster in specific vocations, especially those that entail helping others; in a poll on occupational happiness and satisfaction, priest, fireman, and special education teacher ranked first and second, respectively.

However, other studies have shown that any profession may bring you satisfaction if it capitalizes on your unique skills and accomplishes the following four goals:

1. pushes a person to their limits without defeating them 2. establishes clear objectives 3. delivers unmistakable feedback 4. gives a feeling of control

And you don’t have to wait for your employer to provide these benefits or hunt for a new job to get them; you may find methods to integrate them into your current position.


Man and child holding furniture with moving truck illustration.

A man’s location, next to his career, inspires the greatest wanderlust. On a bad day, who hasn’t questioned whether they wouldn’t be happy in Austin or Portland instead of Toledo? Will packing your belongings and relocating make you happier?

Professor Richard Florida concluded that location was “the third leg in the triangle of our well-being, alongside our personal connections and our employment,” in a poll of 27,000 individuals on the influence of geography on happiness. It should come as no surprise that one of the top three factors influencing our happiness is where we live. After all, where we live affects many other aspects of our lives, including what jobs are available, who we’ll form or maintain relationships with, how stressed or relaxed we are, our health, and what hobbies we can pursue.


Vintage older man sitting on chair and holding glass in hand.

Isn’t it true that you’d want to go back to your college days, to your twenties? Wrong. Happiness peaks at the age of 18 (wow, I miss high school), but then declines until….age 50. It turns out that being middle-aged isn’t as depressing as you would have imagined. In fact, most individuals are happier at 85 than they are at 18 years old. It’s not because your kids have flown the coop and you have more time to play golf; contentment among the elderly and middle-aged was not based on children, gender, marital status, or work. Your brain just begins to feel better as you go grayer, for reasons that academics are still trying to figure out. So you can stop looking for a time machine on the internet and start looking forward to replacing your chucks with orthopedic shoes.


Friends in military uniform portrait.

“An excessive personal freedom philosophy may be disastrous because it pushes individuals to leave their homes, jobs, cities, and marriages in quest of personal and professional satisfaction, therefore shattering the relationships that were probably their greatest chance for such fulfillment.” The Happiness Hypothesis is a theory that claims that happiness exists.


Humans are sociable beings; evolution has ingrained this trait into us. We would not have grouped together to endure the harsh hazards of ancient existence if we didn’t have this need for social relationships. Expulsion from the tribe was therefore a penalty worse than death.

It’s no surprise, therefore, that the strength and breadth of our social network is the most constant predictor of happiness. Spending time with people improves our well-being, whether we’re introverts or extroverts. We get a feeling of belonging, identity, security, support, and enjoyment from our connections. Strong, healthy connections with family, spouse, children, and friends have been determined to be the most beneficial to our happiness in research after study.

There may be a few lone wolves that can happily live in the Alaskan wilderness for decades, but the majority of us never become used to solitude and loneliness.


Vintage couple laying on blankets on the grass.

So, how about a little sex? Many guys have believed that if they only had more sex with more women, they would be more happy. True? To the first, yes; to the second, no. It is true that having more sex makes you happy. How much more content are you? Even a little increase in sex frequency, such as switching from less than once a month to at least once a week, may add $50,000 to your income. The impact of sex frequency on happiness declines once you’ve had some once a week.

But what is the optimal amount of sexual partners each year for happiness? One hundred? Twenty-five? Monogamy seems to be rather appealing.


To summarize, the following factors are linked to happiness:

  • a salary of at least $75,000
  • donating and spending money on others
  • Investing on experiences rather than material possessions
  • living in close proximity to your workplace
  • having become older
  • having a job that you like
  • social relationships that are strong
  • sex that is regular and monogamous

As a result, you can be wasting your time:

  • attempting to achieve great riches
  • hoping you were still in your twenties
  • acquiring a slew of useless items
  • enduring a long drive to work in order to enjoy a larger home
  • Boo Radley’s persona
  • Celibacy that is imposed on you without your consent

Happiness, in the end, boils down to having a positive attitude and appreciating the little things in life. I’ve met guys who performed drudge jobs in backwater communities and lived happily ever after. They learnt to appreciate even the little joys in life. A excellent reading, delectable cuisine, and the beauty and rejuvenation of nature. Instead of concentrating on what they didn’t have, these guys concentrated on what they did have. They instilled a spirit of thankfulness among their students. There’s even a research that backs up this age-old piece of advice.



Happiness is a subjective term, but it is defined as an emotional state of well-being. In the United States, happiness has been shown to contribute to economic growth. However, not all economists agree with this theory. Reference: how does happiness affect the economy.

Frequently Asked Questions

What are the economics of happiness?

A: The economics of happiness are how countries and people use their money in order to improve their happiness. There is a lot of research conducted on this topic, but the most common way that economists think about it is as income per capita divided by life expectancy. For example, Norway has an average GDP/capita rate of $62,000 while Afghanistans GDP/capita rate is only $1,400.

Is happiness good for the economy?

A: Happiness has been shown to be linked with a small decrease in the death rate, which is good for the economy. Although happiness does not have an effect on GDP per capita directly, it indirectly impacts GDP by increasing access to medical care and reducing crime rates.

Why do economists care about happiness?

A: Economists care about happiness because it is a real indicator of how society as a whole functions. In order to understand and predict the changes in our society, we need to know what makes one person happy or unhappy.

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